It really is all about that number on a piece of paper, apparently.FERC issues an annual report of its enforcement activities each November, to let the public know how FERC is protecting them. A big number on the report justifies FERC's activities.Is it about doing the job, or is it about the number?In 2014, FERC says its investigations produced $25M in civil penalties against energy market violators, and $4M in disgorgement of unjust profits. Just $4M? What percentage of annual energy market profits is that? How much money was actually made by manipulating markets? FERC says it saved ratepayers nearly $11.7M by directing refunds and recoveries as a result of its audit activities. What percentage of the total amount of rates is $11.7M?Audit activities included formula rate audits. FERC found much the same kinds of violations it found last year.

Formula Rate Matters. DAA continues to examine accounting that populates formula rate recovery mechanisms used in determining billings to wholesale customers. In recent formula rate audits, DAA observed certain patterns of noncompliance in the following areas:• Merger Goodwill – including goodwill in the equity component of the capital structure absent Commission approval;• Depreciation Rates – using state-approved or a blended depreciation rate consisting of Commission and state-approved depreciation rates without Commission approval;• Merger Costs – including any merger-related costs in rates (e.g., third-party advisory fees, internal labor, severance, and other general and administrative costs) without Commission approval;• Tax Prepayments – incorrectly recording tax overpayments not applied to a future tax year’s obligation as a prepayment leading to excess recovery through working capital;• Unused Inventory and Equipment – including the cost of materials, supplies, and equipment purchased for a construction project without removing the cost of items unused in whole or in part from the cost of a project;• Allocated Labor – using labor cost allocators not based on a representative time study to determine the amount of indirect labor costs to distribute to construction projects;• Asset Retirement Obligation (ARO) – including ARO amounts in formula rates, without explicit Commission approval;• Below-the-Line Costs – including below-the-line costs in formula rates (e.g., lobbying, charitable contributions, fines and penalties, and compromise settlements arising from discriminatory employment practices) without Commission approval; and• Improper Capitalization – seeking to include in rate base (and earn a return on) costs that should be expensed.

So, when are utilities going to stop making the same "mistakes" over and over? Maybe when they are sure to be caught, or when "mistakes" come with penalties? Otherwise, it's like playing roulette for utilities. Over time, they can rake in more than they'll ever have to refund if they are caught. Why are there no penalties for continued violations? During the year, FERC performed 19 audits. What percentage of the total number of formula rates overseen by FERC is this?Do FERC's investigations promote transparency and encourage entities subject to Commission requirements to develop strong internal compliance programs? If they did, would FERC soon find itself out of a job? Or would utilities continue to play FERC-roulette because it's just so gosh-darn profitable?

And in many cases ratepayers are stuck paying for glib lawyers to argue that the penalties should be low to non-existent. How much of that $40 million is covered by ratepayers to defend against toothless auditors or investigators? Plus, what is the cost of running FERC OE? About 100 employees times $150,000 per year is my guess.

Reply

Beanie

12/2/2014 09:01:25 am

Do you mean that the cost of utility lawyers who fight FERC's enforcement are covered by ratepayers? In that case, which is greater: the cost of the penalty or the cost of the lawyers?

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Eric Morris

12/2/2014 09:08:00 pm

Yes, the lawyers hired by the utility are paid by the ratepayers. Many of the market manipulation cases, though, are against entities that are not allowed recovery.

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Beanie

12/2/2014 09:43:20 pm

Is that because they're outsiders?

Eric Morris

12/3/2014 12:54:00 am

Not exactly the reason. Banks, hedge funds, and the less regulated marketing subs of utilities cannot recover at all. However, for all the Southwest Blackout fines FERC is proudly touting these days you are on the hook for probably the DC based outside counsel shadow boxing FERC OE.

Beanie

12/3/2014 01:00:34 am

That stinks! If they pay the fines, the legal fees should be combined with and not recovered. I hope they're not recovering fines because that would be an injustice.

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Eric Morris

12/3/2014 03:18:38 am

They are not supposed to recover penalties, though FERC has caught them doing so a few times. Yes, the recovery of these legal fees, consultants, and even in house costs related to investigations should be contemplated by OE when settling, but probably isn't. That would kill the golden goose to whom many of the FERCers head after "public service".

I'd say call your Congress critter, but they spin their way to those exact same firms!

Reply

Beanie

12/3/2014 01:01:39 am

DC lawyers make too much money off our backs already.

Reply

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About the Author

Keryn Newman blogs here at StopPATH WV about energy issues, transmission policy, misguided regulation, our greedy energy companies and their corporate spin.In 2008, AEP & Allegheny Energy's PATH joint venture used their transmission line routing etch-a-sketch to draw a 765kV line across the street from her house. Oooops! And the rest is history.

AboutStopPATH Blog

StopPATH Blog began as a forum for information and opinion about the PATH transmission project. The PATH project was abandoned in 2012, however, this blog was not.

StopPATH Blog continues to bring you energy policy news and opinion from a consumer's point of view. If it's sometimes snarky and oftentimes irreverent, just remember that the truth isn't pretty. People come here because they want the truth, instead of the usual dreadful lies this industry continues to tell itself. If you keep reading, I'll keep writing.